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Helping insurance brokers create exceptional value: from data enrichment to becoming a full MGA

  • Related sector Services
  • Investment status Current
  • Related company Jensten

Insurance brokers play a fundamental role in the delivery and sale of effective insurance solutions. They are an important part of the insurance chain, bridging the gap between a wide range of clients with very different, often complex risks, and sophisticated underwriters who can build tailored products.

In the digital era, for firms and their management teams with the right systems and right approach to data analytics and data management, this value has been accentuated. A strong focus on data has allowed for greater understanding and insights – and therefore value – to be created.

One of the most powerful ways that insurance brokers and intermediaries can increase their inherent value is by developing their own underwriting capability.

Underwriting capability can take many forms:  from simple data enrichment (providing additional information to the insurer to better inform their pricing and risk selection); to direct involvement in product design and pricing; to the “full fat” option of building your own Managing General Agent (MGA).

An MGA, unlike more traditional agents and brokers, can hold the underwriting pen for certain types of risks, usually complex ones, as well as perform some of the functions usually handled only by insurers. It can be the natural next step for specialist brokers operating in niche, emerging and profitable parts of the insurance industry.

The MGA market appears to be on a strong growth trajectory. According to a Clyde & Co article published at the end of last year, MGA owners are confident the market is set to grow in 2022. It added that 2022 is likely to see a continued rise in the popularity of the Lloyd’s market, with almost half (47%) of the carriers surveyed believing it provides the best environment in which to grow and develop MGA business.

Another recent report, from ratings agency AM Best, stated that MGAs are likely to continue their trajectory of UK growth delivered during the past ten years despite lower levels of available capacity. MGAs will become “of increasing importance” in the insurance distribution chain, said the agency.

In short MGAs, through bringing underwriting closer to the customers, help improve the overall efficiency of the insurance market – and consequently are interesting to Livingbridge as a source of value creation.

Plain vanilla distribution businesses in any sector don’t really excite us. Taking something from party A and selling to party B at a mark-up can become commoditised and leave intermediaries dangerously exposed to margin pressures. By contrast where that distributor has defensible and differentiated ways of adding value to the process, we see the prospect for creating sustainable value for shareholders.

There is significant potential to make further investments in the insurance distribution market, in the UK and overseas, in businesses that have a clear value-added proposition. We are looking to work with management teams and firms keen to grow, and we are highly supportive of building underwriting capability (including establishing an MGA) as part of this journey.

Livingbridge has plenty of experience in the insurance sector, and a great track record of delivering growth. Examples of investments in the insurance market that have benefitted from our approach include Three Rock Group and Jensten.

Ireland-based Three Rock Group comprises Chill, Ireland’s largest independent personal lines insurance distribution platform, and Ivernia an MGA focused on the motor market.  Jensten is a UK SME-focused insurance broking group which has grown significantly since Livingbridge’s investment in 2018 through a number of acquisitions.

We continue to look to back insurance brokers who have the ambition to invest in and develop their businesses, including their underwriting capabilities. If our approach resonates with you – or if you are just interested in an investor’s perspective, please do get in touch.